On Tuesday 27 June, the Commissioner Competition, Margrethe Vestager, justified recent decisions to liquidate two banks in Venice and to restructure Monte dei Paschi di Siena (MPS) in Italy, as well as Banco Popular in Spain, stressing that the European rules in force provide leeway for the member states to take account of the specifics and traditions of the national banking sectors.
“What we are doing here is using our set of rules. These rules make room for member states” to take account of national differences in insolvency matters, for instance, the Commissioner said, adding that the European institutions and member states were currently learning through practice how the European rules work.
Vestager said that the European Commission was extremely vigilant in ensuring compliance with the European rules, from the 'BRRD' directive imposing a bail-in to the 2013 guidelines on the restructuring of failing banks. The decisions made therefore do not constitute a circumvention of the existing rules, she stressed, whilst acknowledging that there was room for discussion on the very content of the rules.
Last weekend, the European Commission authorised the liquidation of the Venetian banks Banca Popolare di Vicenza (BPVI) and Veneto Banca, through the sale of their solvent activities to Banca Intesa and a stock of non-performing loans to an ad hoc bad bank (see EUROPE 11816). The potential cost to Italian taxpayers is nearly €17 billion, with nearly €5 billion in capital and the rest in the form of public guarantees. Shareholders and junior bondholders will be required to contribute to the bail-in.
In early June, the Commission and the Italian authorities announced an agreement in principle on the preventative recapitalisation of the bank MPS, which was considered still solvent, with the Italian state standing ready to compensate any losses made by retail investors (see EUROPE 11800).
In the meantime, the Spanish bank Banco Popular, which was facing a liquidity crisis, was the subject of a bank resolution in due and proper form (see EUROPE 11803). Following the bail-in, the activities of Spain’s sixth biggest bank were sold for one euro to the Santander group, with no financial intervention for the Spanish state.
In all cases, shareholders and senior bondholders suffered losses, whilst critical banking activities (bank deposits, lines of credit to businesses) were maintained. This is the line defended by Vestager, who feels that the vital question is whether the failure of a bank is systemic or not.
There are, however, differences in the level of the financial involvement of the state in the framework of these various rescues. Some observers, such as Roberto Gualtieri (S&D, Italy), who chairs the economic and monetary affairs committee of the European Parliament, argue that the bail-in rule should be made more operational.
In Luxembourg, Klaus Regling, the CEO of the European Stability Mechanism (ESM), said that the recent decisions are positive for the banking sector, as those concerning the Italian banks aim to deal with legacy issues from the creation of banking union in the Eurozone. It “is not easy to understand where the lines were drawn to decide the systemic importance” or otherwise of a bank failure, he said. (Original version in French by Mathieu Bion with Lucas Tripoteau and Marion Fontana)